The power of lambda max

Paolo Paruolo

Economics and Quantitative Methods from Department of Economics, University of Insubria

Abstract: This paper condiders likelihood ratio (LR) cointegration rank tests in vector autoregressive models (VAR); the local power of the most widely used LR 'trace' test is compared with the LR 'lambda max' test. It is found that neither test uniformily dominates the other one. Moreover it is shown that the asymptotic properties of the estimator of the cointegration rank based on the trace test are shared by a similar estimator based on the lambda max test. These results indicate that the both tests are admissible.

Keywords: Cointegration; Likelihood Ratio; Unit roots; Local Power (search for similar items in EconPapers)
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Journal Article: The Power of Lambda Max (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:ins:quaeco:qf0004

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